Signs of the Times Updates

Information

This group is for those who want updates on the economic situation in the U.S. and world. It was established for those who have attended our Signs of to Times Conference.Will be hosting a Signs of the Times Conference in L.A. October 26, 27 and in Dallas, Nov. 16, 17 and our Financial Intelligence Conference in Minneapolis, Oct 2013.

According to the Federal Reserve's latest release of its Financial Accounts of the United States, the total interest-bearing debt in the United States has grown to $58.1 trillion, the largest in history. That includes:

$19.5 trillion in U.S. Treasury debt, government agency debt, or government-sponsored debt (the TRUE national debt),

Things are lining up to produce a very volatile but illuminating third quarter, which is the fourth quarter for the governments of the world whose fiscal year goes from Oct 1st to September 30th. There are many factors which point to this, but let me focus on how the three factors below will effect world economies and markets:

The effects of the Fed stopping, decreasing or continuing Quantitative Easing (QE)

The rise and decline of the dollar next quarter in accordance with the Fed’s QE decisions and economic conditions in Europe

The success rate of the nations of the world in the selling of their debt via government securities sales, in order to make it through another year. Failure to do so will result in a banking crisis in those nations who cannot sell enough securities to cover their debt.

On June 18-19, the Fed met for the their annual review and policy setting meeting and Fed Chairman Bernanke said the economy was improving, growth was looking good and that they may consider decreasing the amount of money being printed at some point between now and mid- 2014. The big question most market managers, traders, Wall Street and Bloomberg commentators were asking is, “why did Bernanke say that?” He knew the US economy wasn’t improving and that many difficulties lay ahead, and he knew the markets would react the way they did. The effects of his comments caused the US stock market to drop 500 points, damaged the Bond market and caused markets around the world to react negatively. Yields (interest rates) on US Treasuries rose 45% in two days causing our indebtedness to rise and the interest we owe on our debt to become even more difficult to pay.

The unnerving reality is that the Fed didn’t actually do anything; they simply suggested they might do something between now and mid- 2014. If this is how the markets react to a possibility, how will they react when something real happens? The Federal Reserve has created a no win situation. They can’t stop printing money, or even suggest it, or the stock and bond markets will drop, interest rates will rise, and even the façade of growth will evaporate as the US economy fails. I suspect the US will continue printing money, because it will delay the inevitable economic failure. The US dollar has risen in value at the talk of tapering the QE, and our stock market will likely experience an initial boost from people exiting the European markets and the Euro.

Last year Spain could not sell enough of their debt to operate another year. This caused Moodys, Fitch and Standard & Poors to lower their credit rating to BBB, which is below investment grade bond. This means all Spanish government securities are considered junk bonds and can no longer be considered a part of their banks’ fixed income portfolio. Like most other countries, the fixed income portfolios of Spain’s banks are comprised of 60% of the country’s government securities. Thus, most of Spain’s banks would have immediately become insolvent, if the European Union (EU) hadn’t directly infused Spain’s banks with enough money to make it another year.

This July many other nations likely will not be able to sell enough bonds to keep operating, which would in turn cause their credit ratings to be lowered. The EU does not have enough money to bail them all out, and has issued statements four times in the last three weeks saying that if the banking system of a nation is experiencing insolvency issues, they must rely on their own banks to bail themselves out; the EU will not bail them out. They also said they were trying to put an EU fund in place to assist, but the funds would be tied to bail-in provisions. A bail-in means freezing and confiscation of bank depositor funds to help cover bank debts.

EU Leaders Set to Slow Support for Ailing Banks (6-27-13) By Rebecca Christie and James G. Neuger